My background is in payments not geo-political conflict, but I find it interesting how political payments infrastructure has become. We see this in the EU’s insistence on building an alternative to Mastercard’s and Visa’s global card networks and this topic is now front and center since Russia has decided to wage war against Ukraine and the West contemplates enacting various sanctions. One potential sanction is to bar Russia from the global payments messaging system SWIFT. An article in Finextra suggest that the West will not take this particular step as the U.S. doesn’t want to give Russia a reason to develop their own payment system and in the process, diminish the role of the U.S. dollar as the global reserve currency:
Exclusion from Swift has often been seen as ultimate global sanction for rogue nations, but it has also been the spur behind the build out of competing networks in both Russia and China.
Politicians are well aware of the growing alternatives to Swift, both from Russia and China, as well as from emerging blockchain networks. They fear that a suspension from Swift could cause a domino effect that would ultimately push nation states to other alternatives and do serious damage to the US dollar’s status as a global reserve currency.
I don’t believe that’s the reason. Competing networks and currency exchanges have already been built. That ship has sailed. Of course, building the network and getting others to use it are different topics altogether. Likely what is at stake is the need for European nations to maintain the flow of funds given their reliance on Russian gas to run their countries. And as this Reuters article points out, European banks hold most of the exposure on Russia’s debt and shutting off SWIFT would make getting those payment really tough:
The foreign ministers of the Baltic states, once ruled from Moscow but now members of NATO and the EU, called on Thursday to stop Russia’s access to SWIFT.
Other EU member states are reluctant to make such a move because, while it would hit Russian banks hard, it would make it tough for European creditors to get their money back and Russia has in any case been building up an alternative payment system.
Data from the Bank of International Settlements (BIS) shows that European lenders hold the lion’s share of the nearly $30 billion in foreign banks’ exposure to Russia.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
